Why the refund you're shooting for could be off target

The 2022 tax filing season is officially open, and the TL;DR is that some people may get a smaller refund this year. In 2021, the American Rescue Plan (ARP) delivered immediate relief to families and workers impacted by COVID-19. Congress made changes to increase the Child Tax Credit (CTC), the Earned Income Credit, and the Child and Dependent Care Tax Credit (CDCC), which caused some taxpayers to see up to a 50% increase in their refund last year.

While the ARP expanded who received support, low to mid-income families were the primary beneficiaries of these temporary changes in 2021. However, the criteria to receive these credits are reverting to pre-pandemic standards, and it’s important to have a realistic expectation of how much money people can expect to receive in their tax refunds this year.

TL;DR

If you didn’t earn any income this year, you’re not going to be eligible for any of these three credits.

If your adjusted gross income (AGI) exceeds $400,000 on a joint return or $200,000 on a single or head-of-household you may qualify for some of these credits, but at a reduced amount.

If you have children you’re going to get a smaller refund than last year. The amount that people will receive for the Child Tax Credit and the Child and Dependent Care Credit has decreased by over 50%.

If you paid money in childcare, you’re entitled to a range of credit based on how many children you have and how much money you make. You can get between 20–35% of $3,000 for one child or $6,000 for two or more children.

If you’re under 25 or over 65, you no longer qualify for the earned income credit. Last year it was available for people 19 and up, but this year the earned income credit is only for people between the ages of 25 and 65.

If you didn’t earn any income this year, you’re not going to be eligible for any of these three credits. Since a lot of people were without jobs during the pandemic, Congress made concessions to people who lost their jobs or were unable to find work. Now that unemployment is at a relatively low level, earning some form of income is a requirement to receive the CTC, CDCC, or Earned Income Credit.

If you’re a high earner and made more than $400,000 on a joint filing or $200,000 on a single or head-of-household filing, you may receive credits at a reduced amount. Your CTC and CDCC will be reduced by $50 for every $1,000 your income exceeds the aforementioned limits.

To be eligible for the CTC and CDCC you need to have a qualifying child. To be considered a qualifying child they must: live at the same address as the person filing for at least half a year; be an immediate descendant of the filing adult, legally adopted, foster child, or stepchild (or a half-sibling or descendant of those relatives); be financially dependent on the person filing; and be claimed as a dependent and not file their own taxes with the IRS.

If you have qualifying children and earned an income, you may qualify for the Child Tax Credit. The credit for children under age 6 is decreasing from $3600 to $2000. The credit for children between the ages of 6 and 17 is decreasing from $3000 to $2000.

The Child and Dependent Care Credit (CDCC) is a tax credit to help families with expenses relating to child care or other dependents. This year, the CDCC is no longer fully refundable, meaning you must have an income to receive the credit. If you have one child, you can receive 20–35% of $3,000; if two or more children, 20-35% of $6,000 — as long as your AGI doesn’t exceed $400,000 on a joint return or $200,000 on a single or head-of-household filing.

If you’re under 25 or over 65, you no longer qualify for the Earned Income Credit (EIC). To qualify, you must have earned income less than $59,187 for the year, and investment income over $10,300 disqualifies you. The max credit for people without children is now $560, down from $1,502.